Indian Government ETF

India

The Indian government lists an ETF

The Indian government is backing the listing an ETF as part of its far-reaching privatisation programme (called “divestment” in the Indian commentary).

Indian Prime Minister Narendra Modi is selling off Indian blue-chip state assets and companies – including Indian Oil Corp and Steel Authority of India – in an effort to raise money for infrastructure and stimulus. The Modi government has made the decision to raise the money through privatisation, rather than through bond issuance or raising taxes.

The new ETF, called the Bharat 22 ETF (BHART22), will be managed by ICICI Prudential, a major Indian money manager. This listing of BHART22 forms an important part of Modi’s privatisation campaign as the new ETF will provide a way for investors can buy into Indian state assets and thus an avenue for Modi to raise revenue.

BHART22 will track the S&P BSE Bharat 22 Index, a purpose-built index made up of 22 Indian companies, of which 14 are state blue-chips and eight are private businesses. The modelled performance of the index is roughly double that of the BSE Sensex and Nifty 50, two of India’s major benchmarks.

Another curious factor in this already curious ETF is that BHART22’s expense ratio is 0.0095% – making it by far the cheapest ETF in the world.

BHART22 was originally offered on discount to “anchor investors” – meaning large financial institutions. With the public listing, it will be available to retail and other smaller financial institutions.

Analysis

That this ETF will perform is more or less unquestionable. Indian investors and financial institutions will be licking their lips at the thought of puddling their fingers into state blue-chips. These include Hindustan Petroleum, the largest oil producer, NTPC, the Indian power producer and Indian Railway. The modelled performance of this index is more or less double that Indian stock market average. And the modelling could well be accurate. Furthermore, the ETF comes with such a low expense ratio that it’s basically free. It’s almost as if Boris Yeltsin were selling off Russia’s assets through an ETF.

What’s more interesting about this listing, however, is the politics it marinates in. Modi’s party, the BJP, is on the Indian right and more sympathetic to the Indian financial sector. The privatisations – and the ETF listing – are unpopular with the Indian left and opposed by Congress and India’s trade union movement. This is the last year in which Modi can get away with making unpopular decisions (next election is early 2019). BHART22 could be the first ETF to end up more in the political section of the news than the financial section.